06/01/2021 0 Comments
This is used to describe funds taken from the business bank account.
Often referred to as drawings, although they are actually different things.
Drawings are money taken by the owner for personal use. It reduces the owners equity or capital.
Withdrawals are funds taken from the bank to use for business expenses.
Funds withdrawn and then held in cash form are usually referred to as petty cash.
Owners drawings are not business expenses.
Drawings will show as a movement on the Statement of Financial Position.
It will not affect the Profit and Loss Statement.
Money withdrawn and held as petty cash also shows as a movement of funds but when spent it is then shown as an expense.
It is essential that a business owner keeps track of business finances so they know what funds are available to withdraw.
If they draw too much from the business they could leave the businesses vulnerable without enough cash flow to carry on.
Owners need to keep on top of their finances to ensure their business can grow and be successful.